Margrethe Vestager, EU competition commissioner, said Brussels' state aid rules do not allow government funds to rescue or restructure failing plants.

"Everyone knows that the steel industry has been facing difficulties with overcapacity within the EU and worldwide, and there is stiff competition from other parts of the world," said Ms Vestager.

"We need to ensure fair competition globally and a level playing field within the EU."

EU industry needs to be competitive globally. It cannot survive on public funds to survive

Margrethe Vestager

Ms Vestager said the Commission would not stand back and watch "a harmful subsidy race between member states and uncontrolled state aid".

"It keeps uncompetitive capacity on the market. It transfers problems to other member states within our union," she said.

Brussels ruled Belgium's regional authority of Wallonia had provided illegal funds to a number of steel companies, part of the Duferco group, between 2006 and 2011.

The €211m aid "artificially boosted the companies' revenues and postponed the difficult yet necessary capacity adjustments," said the Commission.

Duferco's plants were forced into closure in 2013.

"The EU industry needs to be competitive globally. It cannot survive on public funds to survive," said Ms Vestager.

Margrethe Vestager, Europe's competition commissioner

The Commission will also launch a probe into Italian steelmaker Ilva. Brussels will investigate whether the modernisation of its Taranto plant - the EU's largest steel plant - fell foul of state aid rules.

Major European steelmakers have called on the EU to help fight the flood of cheap Chinese imports, and pushed back against Brussels' attempts to grant Beijing market economy status.

Ms Vestager said Brussels would use its anti-dumping trade rules to help protect the single market and correct trade distortions.

Karl Koehler, chief executive of Tata Steel’s European operations, has warned that a failure to use anti-dumping measures would threaten "the future of the entire European steel industry”.

The steel chief has repeatedly warned that China's largely state-backed steel mills dumping some of their excess metal on foreign markets is distorting the global steel market.

In 2015, China produced 441 million tonnes more steel than it consumed, some 300 million of which made its way abroad. European companies in particular are unable to compete with subsidised Chinese steel, with their viability further challenged by the higher labour, energy and environmental costs they face, putting their survival at risk.

"Part of the dialogue with China will be to enable a level playing field," said Ms Vestager. "We need trade tools in order to protect fair competition."